The Boston Beer Company, Inc. Company Profile Publication Date: 16 Sep 2010 www.datamonitor.com Europe, Middle East & Africa 119 Farringdon Road London EC1R 3DA United Kingdom Americas 245 5th Avenue 4th Floor New York, NY 10016 USA Asia Pacific Level 46 2 Park Street Sydney, NSW 2000 Australia t: +44 20 7551 9000 f: +44 20 7551 9090 e: euroinfo@datamonitor.com t: +1 212 686 7400 f: +1 212 686 2626 e: usinfo@datamonitor.com t: +61 2 8705 6900 f: +61 2 8088 7405 e: apinfo@datamonitor.com The Boston Beer Company, Inc. ABOUT DATAMONITOR Datamonitor is a leading business information company specializing in industry analysis. Through its proprietary databases and wealth of expertise, Datamonitor provides clients with unbiased expert analysis and in depth forecasts for six industry sectors: Healthcare, Technology, Automotive, Energy, Consumer Markets, and Financial Services. The company also advises clients on the impact that new technology and eCommerce will have on their businesses. Datamonitor maintains its headquarters in London, and regional offices in New York, Frankfurt, and Hong Kong. The company serves the world's largest 5000 companies. Datamonitor's premium reports are based on primary research with industry panels and consumers. We gather information on market segmentation, market growth and pricing, competitors and products. Our experts then interpret this data to produce detailed forecasts and actionable recommendations, helping you create new business opportunities and ideas. Our series of company, industry and country profiles complements our premium products, providing top-level information on 10,000 companies, 2,500 industries and 50 countries. While they do not contain the highly detailed breakdowns found in premium reports, profiles give you the most important qualitative and quantitative summary information you need - including predictions and forecasts. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor plc. The facts of this profile are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect. The Boston Beer Company, Inc. © Datamonitor Page 2 The Boston Beer Company, Inc. TABLE OF CONTENTS TABLE OF CONTENTS Company Overview..............................................................................................4 Key Facts...............................................................................................................4 SWOT Analysis.....................................................................................................5 The Boston Beer Company, Inc. © Datamonitor Page 3 The Boston Beer Company, Inc. Company Overview COMPANY OVERVIEW The Boston Beer Company (Boston Beer) is engaged in production and sale of low-alcohol beverages. The company operates in the US. It is headquartered in Boston, Massachusetts and employs about 780 people. The company recorded revenues of $415.1 million during the financial year ended December 2009 (FY2009), an increase of 4.2% over 2008. The increase was primarily due to increases in net selling prices. The operating profit of the company was $54.3 million in FY2009, as compared to an operating profit of $14.1 million in FY2008. The net profit was $31.1 million in FY2009, as compared to net profit of $8.1 million in FY2008. KEY FACTS Head Office The Boston Beer Company, Inc. One Design Center Suite 850 Boston Massachusetts 02210 USA Phone 1 617 368 5000 Fax 1 617 368 5500 Web Address http://www.bostonbeer.com Revenue / turnover 415.1 (USD Mn) Financial Year End December Employees 780 New York Stock Exchange Ticker SAM The Boston Beer Company, Inc. © Datamonitor Page 4 The Boston Beer Company, Inc. SWOT Analysis SWOT ANALYSIS Boston Beer is the largest craft brewer and the largest independently-owned brewer overall in the US. In FY2009, the company sold approximately two million barrels of its proprietary products and brewed or packaged approximately 200,000 barrels under contract for third parties. A strong market position provides Boston Beer with significant competitive advantage as well as stabilizes the company's financial growth. However increasing prices of raw materials may adversely affect the margins of the company. Strengths Weaknesses Strong market position coupled with robust brand equity Initiatives to reduce dependence on third party breweries Robust results amidst a weak economic backdrop Lack of scale compared to industry behemoths Product recall tarnishing brand image and financial performance Opportunities Threats Distribution agreement with Moosehead Breweries Growing Hispanic population in the US Growing Craft Beer category in the US Rising raw material prices could adversely affect margins Booming trade of counterfeit alcohol Negative outlook for beer market in Europe Strengths Strong market position coupled with robust brand equity Boston Beer is the largest craft brewer and the largest independently-owned brewer overall in the US. In FY2009, the company sold approximately two million barrels of its proprietary products and brewed or packaged approximately 200,000 barrels under contract for third parties. The company’s Samuel Adams is the third largest brand in the Better Beer category of the US brewing industry. In terms of end customer base, the company sells its products to a network of approximately 400 wholesale distributors, who then sell to retailers such as pubs, restaurants, grocery chains, package stores, stadiums and other retail outlets. Boston Beer’s strong market position is strengthened by its robust brand equity. For instance in 2009, Boston Beer was named the “Supplier of the Year” by William B. Darden restaurants, Outback Steak House and TGI Fridays. Further in an annual TAMMARON survey that ranks brewers in terms of supplier performance in nine different categories, Boston Beer Company ranked first in eight of the nine categories and for the first time ranked as the top brewer supplier overall. Strong brand equity enables the company to retain a strong bargaining The Boston Beer Company, Inc. © Datamonitor Page 5 The Boston Beer Company, Inc. SWOT Analysis position with retailers. Furthermore, a strong market position provides Boston Beer with significant competitive advantage as well as stabilizes the company's financial growth. Initiatives to reduce dependence on third party breweries Globally, as the number of available breweries has declined, the risks of disruption have increased, and the dynamics of the brewery strategy of ownership versus brewing in breweries owned by others has changed. Boston Beer has historically pursued a strategy of combining brewery ownership with production arrangements at breweries owned by third parties. The brewing services arrangements with breweries owned by others have historically allowed the company to utilize excess capacity, providing the company flexibility, as well as cost advantages over its competitors, while maintaining full control over the brewing process for the company's beers. However, in 2007 and 2008, due to concerns about expected future availability and pricing of brewing capacity at breweries owned by others and the company's desire to better control its brewing future and to improve efficiencies and costs long term, the company initiated several steps designed to reduce its dependence on breweries owned by others. These steps included the acquisition of substantially all of the assets of a brewery located in Breinigsville in Lehigh Valley, Pennsylvania from Diageo North America in 2008. From 2007 to 2009, core product volume brewed at company-owned breweries increased from approximately 35% to over 95%. Boston Beer expects to brew over 95% of core product volume in 2010 at company-owned breweries. Reduced dependence on other breweries enhances productivity and in turn boosts its profitability. Robust results amidst a weak economic backdrop While the overall US beer sales declined amidst a weak economic backdrop, the sales at Boston Beer witnessed a steady increase. The net sales of the company increased at a compounded annual growth rate CAGR (2007-2009) of 10%. Furthermore, for the first time, Boston Beer surpassed the two million barrel mark in 2009. Also, in a year when many beer brands saw a 7%-10% dip in on-premise sales, the company’s Samuel Adams’ on-premise sales witnessed an increased sales. The depletions of the company’s products, or distributor sales to retailers, increased approximately 3% in 2009, as compared to 2008. Additionally, the company also registered a strong balance sheet in FY2009. Boston Beer had no long-term debt at the end of December 2009. This implies that it has no interest obligations which in turn can result in stable earnings for the company. Strong results in the current market scenario of recession and downturn strengthens Boston Beer’s sustainability and stability. Weaknesses Lack of scale compared to industry behemoths Despite being the largest craft brewer and the largest independently-owned brewer overall in the US, Boston Beer lacks the scale to compete effectively with its competitors in the beverage industry. The Boston Beer Company, Inc. © Datamonitor Page 6 The Boston Beer Company, Inc. SWOT Analysis During 2008, SABMiller and Molson Coors Brewing Company combined their US operations into a joint venture, MillerCoors, and InBev completed its acquisition of Anheuser-Busch, creating Anheuser-Busch InBev. Today, these two major brewers comprise over 94% of all United States domestic beer production, excluding imports. Further, these two major brewers have entered the Better Beer category recently, either by developing their own beers, acquiring, in whole or part, existing craft brewers, or by importing and distributing foreign brewers’ brands. Apart from this, in January 2010, Heineken entered into an agreement to acquire the beer operations of Fomento Economico Mexicano, SAB de CV (FEMSA Cerveza) which will make Heineken the number two brewer internationally by revenue and significantly increase Heineken’s ownership position in the Better Beer Market with the addition of FEMSA Cerveza brands. Scale is crucial to cost leadership in the beer industry because the brewing process requires heavy investment in plant and equipment, and a significant proportion of brewers' costs are fixed. Although there is some loyalty to beer brands, consumers usually have a choice of lager in both on-premise and off-premise channels, so switching costs are low. Boston Beer's lack of scale means that it is unlikely to generate the excess returns on invested capital enjoyed by the global leaders in the brewing industry. Thus, lack of scale hinders Boston Beer a competitive advantage and also reduces its bargaining power in the fiercely competitive market. Product recall tarnishing brand image and financial performance Boston Beer Company in 2008 was involved in a voluntary recall of select 12 oz glass bottles of its Samuel Adams beer which contained small grains or bits of glass. This was the first recall of the company since its founding in 1984. The recall negatively impacted Boston Beer’s 2008 operating results before tax by $22.7 million and its 2008 net income by $12 million. The estimated net income per dilutive share effect was $0.84 for 2008. Product recalls like these indicate inadequate quality assurance and quality control systems. Also, recurrent product recalls will not only affect the brand image of the company but also impact its financial performance. Opportunities Distribution agreement with Moosehead Breweries Boston Beer and Moosehead Breweries (Moosehead), in February 2010, entered into a five-year distribution agreement under which Moosehead and its subsidiary, The Premium Beer Company, will assume the Canadian distribution of Boston Beer’s portfolio including its flagship brand Samuel Adams Boston Lager. Moosehead is the largest independent brewery in Canada. Boston Beer can leverage Moosehead’s strong presence in Canada to establish a strong footprint and increase its revenues and profitability. Growing Hispanic population in the US The Boston Beer Company, Inc. © Datamonitor Page 7 The Boston Beer Company, Inc. SWOT Analysis Hispanics are the most rapidly growing ethnic group in the US. They are also becoming increasingly affluent, increasing their importance to marketers. The Hispanic population in the US is projected to jump from 35.2 million in 2000 to 102.6 million in 2050, 24.4% of the US projected population. Furthermore, according to industry sources, the purchasing power for Hispanics will also increase significantly from $860,000 million in 2007 to a projected $1.2 trillion by 2012. The demand for beverages from the Hispanic population is on the rise in the US. As Boston Beer mainly operates in the US, this trend could result in further increase in the demand for company's products in the future. Growing Craft Beer category in the US Despite the weak outlook for the overall beer sales, the Craft Beer category is on the rise in the US. The Craft Beer category grew approximately 5%, while the Better Beer category was down 2% to 4% and the total beer category was down 1% to 2% in 2009. Furthermore, Craft beer sales soared 12% in value and 9% in volume in January to June 2010, compared to a US beer market that fell about 3% during the same period. According to industry sources, craft beers will continue to outgrow the overall US beer market during the next few years. Boston Beer is the largest craft brewer in the US. The company is thus well positioned to exploit the growing Craft Beer category in the US and enhance its top line and profitability. Threats Rising raw material prices could adversely affect margins Barley and molasses are the key raw ingredients used in alcohol production. The price of barley has increased at an annual rate of 13% in the last two decades because of the booming ethanol market. The increase is partly because farmers are devoting less acreage to the grain in favor of more lucrative crops, especially corn. The malt and barley prices raised more than 32% per hectoliter (on a constant currency basis) in FY2009. The prices of barley and malt are further expected to rise in the coming period. Also, the company faces an increasing threat of volatility in prices of molasses. The tight molasses market is prompting the companies to call for extra imports in order to avoid shortages in the market. An increase in the prices of raw materials may adversely affect the margins of the company. Booming trade of counterfeit alcohol The sale of counterfeit alcohol is increasing globally. Counterfeit alcohol refers to the selling of cheap, fake alcohol under reputed brand names. As per the International Federation of Spirits Producers reports, counterfeit alcohol leads to an estimated $1,000 million loss annually. The trend is only expected to grow in the future. Besides revenue losses, counterfeits alcohol products also affect the company's brand value since the taste and composition are of poor quality. Moreover it could hit the customer confidence as the fake product does not give the desired results promised by the brand. The Boston Beer Company, Inc. © Datamonitor Page 8 The Boston Beer Company, Inc. SWOT Analysis It then becomes increasingly difficult for companies like Boston Beer, to win back disillusioned customers, since their revenues are mostly driven by brand loyalty. An increasing counterfeit market, hence, would affect the company both in terms of brand equity as well as revenue. Negative outlook for beer market in Europe The beer market in Europe has witnessed a significant decline in its value and volume in the recent times. In FY2008, as per Datamonitor's report, the Europe beer market shrank by 0.4% to reach a value of $223,200 million. By FY2013, the European beer market is forecasted to have a value of $218,100 million, a decrease of 2.3% since FY2008. Furthermore, the European beer market volume is forecasted to reach 43,400 million liters by FY2013, a decrease of 5% since FY2008. Although Boston Beer sells its products predominantly in the US, it also has markets Europe. The negative outlook in this region will have adverse impact on the revenues and margins of Boston Beer. The Boston Beer Company, Inc. © Datamonitor Page 9 Copyright of Boston Beer Company, Inc. SWOT Analysis is the property of Datamonitor Plc and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.